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There Are Two Ways To Make Money

In 1970, Iacocca was made president of Ford Motor Company ie. head of 432,000 employees with a payroll of $3.5 billion, with over 2.5 million cars and 750,000 trucks produced per year. Overseas production was an additional 1.5 million vehicles. Total sales in 1970 were $14.9 billion with a profit of $515 million. According to Iacocca, there are two ways to make a profit.

(1) sell more goods or 2) spend less on overhead.

It is always easier to cut spending in the name of efficiency than to increase sales. For example, Iacocca cut 4 problem spots down by $50 million in a) timing foul-ups, b) product complexity, c) design costs, and d) outmoded business practices. There was room for improvement in switching production from one vehicle to another at Ford plants, which usually took 2 weeks. By 1974, conversion times were down to a weekend through computer programming. Iacocca attacked freight spending as well, which had only a small percentage of the total expenses, but was at over $500 million a year. Under Iacocca, freight cars were much more tightly packed, a few millimeters meant the difference between packing a car or paying to ship air (ie. space). Iacocca closed down the appliance side of Ford, which made laundry machines that were not competitive within that industry.

Another more personal example of analyzing spending was in the Glass House (Ford HQ). Henry Ford II loved the Glass House cafeteria hamburgers because he could not get anything like it anywhere else and so Iacocca investigated with the head chef how Henry Ford’s hamburgers were made so delectable. The chef showed Iacocca the process revealing that these hamburgers were actually grinded down New York strip steaks shaped it into patties. Waste was abundant at Ford. The lunches in the cafeteria cost $2.00 per day, but that was after tax spending for each management executive. Everyone in the cafeteria was in the 90% bracket of the 1960s era taxation so $2.00 meant you had to earn $20.00 to pay for that hamburger since 0.90 x $20.00 = $18.00 which went to the government. Iacocca conducted a study of the cafeteria and determined that the cost per head was $104 per day. Cutting costs would earn respect with the bean counters of the company.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: Build A Social Powerbase Within Your Company

In 1968, Bunkie Knudsen became president of Ford Motor Company. Henry Ford II brought him in because he was sure that Knudsen would be a high profile win against GM where Bunkie had cut his teeth. Bringing in an expert from another of the Big 3 was coup at a salary of $600,000. The only problem is that Bunkie Knudsen did not mesh well with the Ford culture. Many resisted the GM management style which was slower and committee oriented. According to Iacocca, who desperately wanted the president’s job, Bunkie made a series of bad decisions. But most importantly, Knudsen failed to bring over anyone from GM to follow him, therefore he had no power base within Ford and not much loyalty towards him existed within Ford. This is essential for success at the top because the forces that might try to bring you down are greater. Knudsen ignored the existing lines of authority within Ford and alienated a lot of top people by making decisions that fell under other people’s remit. Knudsen’s vision was to make bigger muscle cars in a time when demand suggested this was sensible.

Iacocca’s view was that Knudsen was fired because he opened Henry Ford’s office door without knocking one time and Henry Ford did not like when people did not knock before entering his office. In reality, many reports suggest that Iacocca built a coalition of top executives that ganged up against Knudsen (focusing on his mistakes) in order to get him fired. Lee really really wanted to be president of Ford, and his record of tangible results first with the Mustang then with the Mark III, suggested that he was a good inhouse hire for the job of president of Ford. The decision was up to the whims of the guy “with his name on the building” but Iacocca points out that Henry Ford was so weak kneed that he had the VP public relations Ted Mecke inform Knudsen of his impending firing instead of directly firing Knudsen himself. According to Iacocca, it’s a truly ridiculous way to fire someone but that speaks to the character of Henry Ford II.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: Rise To The Top Through Merit

Lee became the vice-president of the corporate car and truck group in January of 1965, making him responsible for planning, production and marketing of all cars and trucks for the Lincoln-Mercury and Ford Divisions. However, there was a big problem, the Lincoln-Mercury division was not retaining the Ford customers who were growing wealthier after having owned cheaper Ford models. The purpose of Lincoln-Mercury is to provide premium, upscale, high-priced cars that the customer would graduate into. Instead, these customers did not stay with Ford’s luxury line.

Unfortunately, customers were shifting to General Motor’s Cadillac division. For Iacocca, this Ford-abandonment was because their cars were not exciting or distinctive. The Lincoln-Mercury division also needed new sales managers. Lee spearheaded the Mercury Cougar as a luxury sports car and the Mercury Marquis . Both were full-sized cars designed to compete with the Buick and Oldsmobile. In order to demonstrate the car’s smoothness on the road, various ads were placed to emphasize that you could play a vinyl record and not have it slide while travelling on the road. In addition, Iacocca developed the Mark III in order to directly compete with the Cadillac. For Iacocca, in the United States, you can always count on the rich getting richer during a depression. Luxury vehicles are always in demand.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Change the World, The Mustang Story 3

The annual capacity for Ford Motor Company production in 1965 was 360,000 cars and soon they were converting a 2nd and 3rd plant to respond to demand. The options were where the Mustang would make major gains, over 80% ordered white sidewall, 80% wanted a radio, 71% wanted an eight-cylinder engine. The upsell of $1,000 was the average on the original Mustang. Within the first year the Mustang sold 418,812 cars, which was just beyond the record McNamara set with the Falcon at 417,174 cars in one year. The Mustang generated a net profit of 1.1 Billion in the first two years. Strangely enough, the horse logo is running in the clockwise direction when most horse races move in the counter-clockwise direction. It turns out that Iacocca believed this was a wild horse.

Unfortunately within a few years, like all Ford cars, the Mustang was blown up in size by a total of eight inches longer, and six inches wider. In 1966, they sold 550,000 Mustangs but by 1970 at a price of $3,368 sales had plummeted to 150,000 which was a disastrous decline. This tendency was created due to the perceived demands of the customers for larger cars with bigger engine (429 cubic-inch Cobra Jet V8) that Bunkie Knudsen the new president of Ford had pushed for. However, the response was clearly to the contrary. The muscle car market collapsed by 1971 due to insurance premiums and stringent regulations on fuel emissions, according to Iacocca.

(Iacocca has appropriated the Mustang mystique as his own even today)

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: Change the World, The Mustang Story 2

The deadline for this new car was April 1964 for the World’s Fair in New York, an audacious occasion to showcase a new car since this was not standard practice. Many designs were proposed but the model created by David Ash called the Cougar was accepted as the one to go ahead with and when Henry Ford Jr. sat in the prototype he said “It’s a little tight in the back seat. Add another inch for leg room.” This meant major cost over runs but Iacocca knew that what Henry Ford II said got done. Another contribution from Ford was that the proposed Torino name had to be scrapped since Ford was jet-setting with a new divorcee from Italy. So Mustang was choosen because the horse bread is very American and is also the name of the US Fighter Planes of World War II.

The Mustang was for white-collar stylish and blue-collar workers. It was a symbol of status and prestige. The original Mustang cost $2,368 without accessories. The response was unexpectedly positive from Ford’s perspective having planned only 85,000 cars under Arjay Miller’s leadership. Miller was also concerned about cannibalization since the Falcon was also in the same price range. They promoted the Mustang full tilt with Mustang’s for kids sunglasses, key chains and hats.  The Mustang advertisements were highly effective in building excitement.

The success of the Mustang ultimately does not lie in the marketing but in the quality of the product itself according to Iacocca. The press also played an important role in promoting the story of Mustang. Newspapers reported about the Mustang voluntarily and the hype was an insatiable news story. In one case, a man driving a cement truck was so taken with the Mustang on display in a Ford dealership that he crashed into the show room. Customers were bidding at the highest price to get a Mustang in advance of regular sales. In order to guestimate the car’s production volume, Frank Zimmerman put Mustang’s in Dayton, Ohio a “GM town” to see if it would pick up sales. The share of the Dayton market for Ford grew to 10%.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.